Steel Industry

Analysis
Group-9
Abhijit Kande 1811405
Neha Koli 1811409
Anjali A Kumar 1811412
Gunjesh Kumar 1811413
Sandesh S Naik 1811422
K V Aditya 1811428
Industry overview
The Indian Steel Industry includes three categories - the major producers, other major
producers and secondary producers that produce steel in different forms (Liquid, crude &
finished), different composition (alloy and non-alloy) and also based on the end use
(automotive, construction, rail, etc.) [1]
Industry Performance Key Metrics

• 2% of India’s GDP[1] Data for FY18[3]

• Industry Value – INR 6 Lakh Crore • Production - 102.34 MTPA
• CAGR- 8.39% (FY11-18) • Capacity - 134.6 MTPA
• Globally, 3rd largest in crude steel • Consumption - 90.68 MTPA
production
• Export - 9.62 MT
• CSI Market (globally) [2]:
• Import - 8.9 MT
Gross margin - 15.4%
Net Margin - 5.64% • Per capita consumption - 68 kg

2
Industry timeline 5 6 Indian Bankruptcy
Code : Accelerated
National Steel Policy (2017) : Target to consolidation in steel
boost capacity to 300 MTPA on supply industry. Bhushan
side & induce consumption of 160 kg steel acquired for $5.4
by 2030 on demand side [8] 2017 2018 bn by Tata Steel.
Production – 102
4 Anti-Dumping duty for 5
years,100% FDI allowed [6][7]
2016 MTPA [9][10]
National Steel Policy (2005) : 3
1
Increased investments in R&D and
State control infrastructure; reduce procedural
established. Only 3 2005 and policy bottlenecks [5]
private players
producing industrial 1947 1992 2
output of 1 MTPA . Tata Surge in private sector and foreign
Iron and Steel Company investments following liberalization.
was one of them[4] Pricing and distribution were
deregulated. [4]
Bargaining Power of
Buyers Major Buyers
<Short term contracts> <Long term contracts>
Infrastructure industry , SME Automotive industry, Ship building,
Aeroplanes, Large Scale industries

Low Switching costs

Undifferentiated and standardized
01 products. [11]
High Volume Customers
02 Majority of demand comes from from two concentrated
industries – Automobiles and Construction . [12]

Government protectionism
03 Duties on imports leading to reduced
options for imports on buyers side.[13] ( )
The Bargaining power of Buyers for steel is
Threat of new
entrants
Capital-intensive business
01 Cost of setting up integrated steel plants
requires large capital[14]
Economies of Scale
02 Existing large players incur lower Cost of raw material
procurement and lower R&D expenditures[14]
Government policy
03 Century old reputed company, First mover
advantage[15]
Product differentiation
04 Steel, being a commodity cannot be branded and
differentiated[16]
100% FDI
05 Foreign players can directly invest in the steel
industry[17] ( )
The threat of new entrants for steel industry is LOW
Bargaining power of
Suppliers 
Main Suppliers: Ore Suppliers, Coal Suppliers,
Electricity Suppliers, Labor
Supply Chain
Most manufacturers have efficient backward integration – Iron
01 ore supply control[18]

Raw Materials
02 Easy switching between suppliers- availability of cheap iron
ore globally[19]

Other inputs:
03 Coking Coal & Power have few manufacturers and hence are
charge a premium[20]
( )
The Bargaining power of Suppliers for steel is MEDIUM
Threat of
Substitutes
Aluminium:
01 Usage of Aluminum is increasing at 5% per annum. Cars made
in USA (such as Ford) would be using as high as 249.5 kg by
2025 from 148.3 kg in 2009[21]
Plastic:
02 Used in major industries: Automobiles, Piping and Packaging.
Almost 95% cars now use plastic fuel tank[21]
Magnesium Alloy:
03 The automakers are thinking of using 40-100Kg of Mg alloys in
a car and its usage is going to increase by 300% in near
future[22] ( )
Aluminum is a potential threat but other two are not a threat in near future, threat of
substitution for steel is LOW
Existing Rivalry 
Existing Competitors
01 Few Large Competitor present such as Tata Steel, JSW, SAIL[23]

Other Dimensions of Competition

02 Comparative production capacity, access to raw materials, etc. [24]

Growth Rate
03 Capacity is projected to double by 2030. Indicative of Industry Growth[25]

Variety of products
04 Limited (Finished steel is either of flat or non flat form)[26]

Government Policies
05 Positive impact of Govt. protection from global price pressures[27].
( )
Industry Rivalry among major players is MEDIUM
 PEST Analysis
• National steel policy 2017[30]
• Insolvency & Bankruptcy code[31]
• Hike in import duty by 25% twice last year[29]
• Announcement of Pradhan Mantri Awas
Yojana, Make in India, 100 smart cities mission,
P E
UIDSSMT, HRIDAY[28]
( )
S T
( )
• Rural India is expected to reach per
capita consumption of 12.11 to 14 kg
by 2020 owing to faster urbanization.[28]
• Expected GDP growth of 7.5% &9% YOY
growth in steel consumption.[32]
• Infrastructure steel consumption is
predicted to reach 11% of total by 2026.[28]
• The automotive industry is expected to
grow to $260-300 bn by 2026. [28]
( )
( )
• Multiple acquisitions of global firms by
Indian companies resulting in technology
adaptation.[34]
• Increased focus on quality iron ore owing to
low cost high quality Chinese imports.[33]
Financial Analysis
For 2018 Tata Steel JSW Steel SAIL Jindal Global Steel
(Hisar) Industry Analysis
(Average
Market Cap 69,417.51 91,781.86 27,488.65 2,430.13 Figures)
(in cr.)
Net Margin (Pretax) 5.90%
Sales 59,160.79 64,975.00 57,558.46 9,258.67
Return on Assets 8.05%
Turnover
(ROA)
Net Profit 4,169.55 4,625.00 -481.71 395.70 20.02%
Return on Equity
Total Assets 89,028.67 59,630.00 77,735.15 3,904.72 (ROE)
*Source: csimarket.com (As on Saturday 13th October, 2018)
Total Debt 27,513.83 31,723.00 42,021.48 2648.71
Net Profit 6.99% 7.11% -0.83% 4.27%
Margin Inferences:
ROA 3.33% 5.40% -0.42% 6.39% • Indian Industries perform poorly in
ROE 6.77% 16.57% -1.34% 31.50% ROA, ROE as compared to global
ROCE 12.87% 7.66% -0.68% 11.11% averages.
• High profits for all players
*Source: moneycontrol.com (As on Saturday 13th October, 2018)
except for SAIL
• High Total Assets indicate heavy
Conclusion
Industry trends
Plant upgradation & capacity expansion [29]
Example - SAIL spent Rs 64,562 cr[30], JSW
to spend Rs 26,800 cr.[31]
Industry consolidation improving more
profitable.
Example – Debt ridden companies likely to
be acquired by profitable firms. (JSW in
talks to acquire Ilva)
International Expansion33 and restructuring
of business to reduce costs.
Example – Tata Steel34
Post industry analysis, we conclude that
• High bargaining power of buyers
• Low threat of new entrants
• High bargaining of suppliers
• Low threat of substitutes
• Medium industry rivalry
PEST analysis shows external political, social,
economic and technological factors are
favorable for future growth.
Thus the steel industry has an overall
low profitability with high growth potential.
Refere
nces
1. https://www.ibef.org/industry/steel-presentation
2. https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=107
3. IBEF report steel-sep-2018
4. http://steel.gov.in/sites/default/files/Annual%20Report%20%28English%29_0.pdf
5. http://steel.gov.in/sites/default/files/nspolicy2005.pdf
6. http://theindianlawyer.in/pdf/Investment%20in%20Steel%20Industry.pdf
7. The Hindu Business Line - Anti dumping duties slapped on Steel products
8. http://steel.gov.in/sites/default/files/draft-national-steel-policy-2017.pdf
9. https://timesofindia.indiatimes.com/business/india-business/ibc-process-to-push-con
solidation-in-steel-industry-says-ey/articleshow/64683316.cms
10. https://www.tatasteel.com/investors/integrated-reportannual-report/integrated-rep
ort-annual-accounts-2017-18-111th-year-and-related-documents/
11. http://steel.gov.in/sites/default/files/Annual%20Report%20%28English%29_0.pdf
12. IBEF report sep 2018
13. The Hindu Business Line - Anti dumping duties slapped on Steel products
Refere
nces
14. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
15.
https://www.ukessays.com/essays/economics/tata-steel-and-the-global-steel-industry-economic
s-essay.php
16. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
17. The Hindu Business Line - Anti dumping duties slapped on Steel products
18.
https://www.ukessays.com/essays/economics/tata-steel-and-the-global-steel-industry-economic
s-essay.php
19. Steel Industry Report by Indian Brand Equity Foundation, Sep 2017, Page 10
20. http://criticalrawmaterials.org/coking-coal/
21. Financial Express,Material Substitution is the biggest challenge for steel industry
22. Research Gate – Magnesium & Its Alloys in Automotive applications
23. Indian Brand Equity report on Steel Industry
24. https://www.equitymaster.com/detail.asp?date=12/29/2008&story
25. Live Mint, 11th Oct 2017, “Indian Steel capacity to become 2x”
26. RSBA Indian steel industry analysis
Refere
nces
29. An overview of steel sector
30. National steel policy
31. Tata Steel's Rs 35,200 cr Bhushan Steel deal
32. Tata Steel results presentation
33. China's shift to high-grade iron ore isn't set in stone: Russell
34. Acquisition of insolvent steel assets to increase leverage of buyers
35. Indian Brand Equity report on Steel Industry
36. https://timesofindia.indiatimes.com/business/india-business/sail-spends-rs-64562-cr-on-
modernisation-expansion-of-plants/articleshow/58255126.cms
37. https://www.financialexpress.com/industry/jsw-steels-rs-26899-cr-expansion-plan-to-hit-
repayments-analysts/682782/res
38. http://www.dnaindia.com/business/report-dna-investigation-steel-firms-playing- monopoly-
passing-on-cost-to-consumers-2551927
39. https://www.bbntimes.com/en/global-economy/analysing-the-indian-steel-sector
40. https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/tata-steel-to-
restructure-india-business-to-reduce-costs-and-increase-
productivity/articleshow/51099039.cms